Europe stagnates after chock bull charge

LONDON (Reuters) – A five-day charge of global equities collapsed Tuesday as caution over renewed coronavirus blockages resumed, although that was not enough to completely quell the hot July streak in China.

London, Paris and Frankfurt lost around 1% at the start of the session, as bumpy conditions replaced investors towards the dollar and regional government bonds. [GVD/EUR][/FRX]

Tokyo, Hong Kong and Seoul had all lost ground in Asian trade, while the top-ranked Shanghai index was losing ground after adding to the 15% gains it had made in the past week . [.SS]

“Just when many parts of the world appeared to have mastered the coronavirus pandemic, many jurisdictions reimposed blockages to contain a wave of new cases,” said Luca Paolini, chief strategist at Pictet Asset Management.

He said corporate earnings prospects were clearly a concern. The consensus is that worldwide profits will drop by around 20% percent this year after the deepest recession in more than a century, although Pictet predicts a collapse of 30% to 40%.

“But that doesn’t mean the equity and corporate bond markets are expected to go down sharply,” said Paolini, predicting that the US Federal Reserve would inject an additional $ 1.3 trillion in stimulus this year and that the ECB would add an additional 1.1 trillion euros.

Analysts said Chinese government signals through a state-sponsored newspaper about the importance of “fostering a healthy bull market” published on Monday had helped the recent Chinese stock buying spree.

The current rally in China echoes the past, especially in 2007 and in the buying wave that followed the crash of 2015, which was largely driven by Chinese retail investors.

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“The Shades of John F. Kennedy’s Inaugural Speech” Don’t Ask What Your Country Can Do For You “here and as close as possible to a Chinese government” put “like everything the Fed has done to this day vis-à-vis the US stock (and credit) markets, “said Ray Attrill, head of FX strategy at NAB, in a research note.

A sharp rebound in service sector activity in the United States in June, almost returning to its pre-pandemic level, also helped to whet investors’ risk appetite.

Graphic: ChiNext advances here


However, new cases of coronavirus have increased in several states, forcing some restaurants and bars to close again in a reverse to the nascent recovery that has helped control gains in risky assets.

The foreclosure measures were re-imposed in Australia’s second largest city, Melbourne, on Tuesday, confining residents to travel, except essential, for another six weeks.

In the currency market, the Chinese yuan reached its highest level in almost four months. The renminbi rose 0.1% to 7.0115 per dollar, but on a small scale from the nearly 1% jump on Monday.

“The yuan is supported by the mood of risk in the Chinese equity market despite lingering uncertainties over US-China relations and the expected slow pace of recovery,” said Ei Kaku, chief strategist at Nomura Securities.

Other major currencies struggled as the dollar gained strength. The yen remained stable at 107.41 per dollar, the euro fell below $ 1.13 and reached $ 1.1275, while the Australian dollar fell 0.5% after headlines measures locking Melbourne broke.

Gold dipped slightly in metals, but was still near an eight-year high at $ 1,776 an ounce. Copper was also slightly weaker in London trade, after hitting a new five-month high as part of the Chinese charge in Asia.

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Oil prices have also experienced difficulties in line with most commodity markets. Brent crude lost nearly 1% to $ 42.69 a barrel, while US crude West Texas Intermediate fell to $ 40.24.

With 16 US states reporting a record increase in the new COVID-19 case in the first five days of July, according to a Reuters report, fuel demand in the largest oil-consuming country is again concerned.

Florida is reintroducing certain limits to economic reopenings to cope with the increase in cases. California and Texas, two of the most populous and economically important states in the United States, also report high infection rates.

“The potential to destroy demand while reinstatement of the foreclosure seems more likely combines with concerns over OPEC + discipline to weigh on oil prices,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney in an email.

Chart: the largest stock exchanges in the world since early 2020 here

Source: Reuters

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